Illinois school finance bill bails out Chicago

Ted Dabrowski

Vice President of Policy

Ted Dabrowski

John Klingner

Policy Analyst

John Klingner
July 18, 2017

Illinois school finance bill bails out Chicago

A bill that has passed the Illinois House and Senate would provide CPS with a $215 million pension bailout and other funding carve-outs.

Illinois lawmakers are on the verge of forcing state taxpayers to pay for a bailout of Chicago Public Schools, which wants hundreds of millions a year in new state dollars to pay for its teacher pension and health care costs.

The bailout is part of a new education finance reform bill, Senate Bill 1, which both the Illinois House of Representatives and Senate passed in May.

SB 1 requires Illinois to adopt a funding system that’s been proven ineffective in other states. It also rewrites the state’s education funding formula and calls for $3.5 billion-$6 billion more to be spent on education over the coming years.

Those additional billions would have to come out of taxpayers’ pockets. That means even higher taxes in addition to the $5 billion income tax hike that lawmakers just approved in their no-reform 2018 budget.

Also embedded in the bill is a massive bailout of CPS. SB 1 provides a $215 million annual pension bailout and other carve-outs worth millions to CPS.

Gov. Bruce Rauner has said he will amendatory veto the bill when it arrives on his desk.

This bill would be unfair to taxpayers – who are facing a newly passed 32 percent income tax hike – by forcing them to pay for years of financial mismanagement by CPS officials, while demanding no district reforms in return.

And it’s a distraction from the real reforms Illinois can enact to improve education. Illinois spends more per student than any other state in the Midwest, yet much of that money never makes it to the classroom. Much of it is swallowed by Illinois’ excessive number of school districts, costly administrators and unaffordable pensions.

State taxpayers shouldn’t be forced to bail out Chicago’s mismanaged school district. Instead, lawmakers should reform pensions and encourage district consolidation to free state dollars from Illinois’ expensive, growing education bureaucracy.

How SB 1 bails out Chicago

SB 1 gives more special carve-outs and bailouts – worth hundreds of millions of dollars in state funding – to CPS. State lawmakers are forcing downstate taxpayers to bail out Chicago after more than 20 years of district mismanagement, skipped pension payments, excessive borrowing and unaffordable teacher contracts.

  • The bill gives CPS the pension bailout Chicago officials have long demanded. SB 1 requires state taxpayers to give the district $215 million a year for CPS’ “normal” pension and health care costs – the additional benefits Chicago teachers earn annually – every year going forward.By forcing state taxpayers to pay for CPS pensions, lawmakers are bailing out CPS from the 10-year pension holiday it took starting in the mid-1990s. For nearly a decade, CPS failed to put any money in its pension plan, instead using money that should have gone to pensions primarily for salary increases.
  • Under SB 1, CPS is partially exempt from the new “evidence-based” formula to which every other district is subject. It gets to keep the early childhood education portion of its special block grant, which no other district receives. That will provide CPS with millions more from the state than it would otherwise get.
  • Under the bill, the district is allowed to look “poorer” than it actually is when applying for education state aid. CPS will get to subtract the cost of its old retirement debt from its local revenues. That means the district will get more state aid than it otherwise would. No other district will get to do that.
  • Chicago will also benefit from SB 1’s “hold harmless” provision. The “hold harmless” provision ensures that a district cannot receive less in state aid funds than it did the previous year. The provision protects a district’s state funding even if it experiences changes in demographics (e.g., a drop in student attendance that would have otherwise led to less state funding).

A majority of Chicago’s special block grant funding will be folded into the hold harmless provision. That means, even under the new formula, Chicago will continue to receive hundreds of millions more from the state, which no other district is entitled to.

Don’t bail out CPS – cut bureaucracy instead

Rauner is right to promise a veto of SB 1 when it arrives on his desk.

It’s just the latest expensive formula promising to fix education. But increasing the funds Illinois spends on education by billions is not the solution to the education crisis.

Nor is a taxpayer bailout of CPS.

CPS doesn’t deserve special carve-outs or state payment of its pension costs.

Instead, the state should stop paying for the pensions of all Illinois school districts.

Teachers are not state employees. The responsibility for paying the employer’s pension contribution for teachers should be shifted back where it belongs – local school districts.

Current law encourages districts to grant higher pay, end-of-career salary hikes, and perks that spike pensions, knowing the state will pay the pension costs. School districts will only moderate the perks they dole out when they are required to pay for them.

In addition, making sure more of the money Illinois already spends on education actually makes it to students can help improve education in Illinois.

Lawmakers can enact several common sense reforms right now – highlighted in the Illinois Policy Institute’s report on education finance – that would ensure funding reaches Illinois students.

Those reforms can be done without demanding more from struggling taxpayers, who pay the highest property taxes in the nation and who are facing a $5 billion tax hike.

Lawmakers would do well to start by freeing up the billions of education dollars consumed in pensions, the state’s nearly 900 school districts and the executive pay for those bureaucracies.

Until then, lawmakers shouldn’t demand taxpayers spend billions more on education – especially to bail out CPS.

Instead, they should focus on getting better outcomes with what Illinois, the biggest education spender in the Midwest, already puts into education.

Want more? Get stories like this delivered straight to your inbox.

Thank you, we'll keep you informed!